Property Investment Lending Rules: Deposits, LVR, DTI, and Tax
The Reserve Bank and the IRD set the rules on how much you can borrow and how investment property lending is taxed. These rules have changed several times in recent years and will change again. Working with current numbers matters.
Loan-to-Value Ratio (LVR) Restrictions
The Reserve Bank sets minimum deposit requirements for property investors, and these differ for existing properties and new builds. New construction generally requires a lower deposit, making it more accessible. Banks can make a small number of exceptions under speed-limit provisions, and non-bank lenders may apply different thresholds entirely.
Individual banks also apply their own internal lending criteria on top of the Reserve Bank’s rules. For certain property types, locations, or apartment sizes, a bank may require a larger deposit than the regulatory minimum. A broker who works across the full lender panel will know which lenders apply which restrictions.
Debt-to-Income (DTI) Restrictions
Since mid-2024, banks also apply debt-to-income limits to residential lending. For investors, the cap on total debt relative to gross income is tighter than for owner-occupiers. This means borrowing capacity now depends on income as much as equity, which is a significant shift for investors with strong equity positions but moderate incomes.
DTI limits are set by the Reserve Bank and reviewed alongside LVR settings. Your broker can confirm the current thresholds and model how they apply to your specific situation.
Interest Deductibility
From 1 April 2025, mortgage interest on residential investment property is once again 100% deductible against rental income. This reverses the restrictions introduced in 2021 and significantly changes the numbers for most landlords.
To illustrate: an investor with a $600,000 mortgage at 5.5% pays roughly $33,000 in annual interest. At a 33% marginal tax rate, full deductibility saves approximately $10,900 per year compared with zero deductibility. These figures are illustrative and depend on your rate, loan balance, and tax position.
Rental losses remain ring-fenced: they can only be carried forward to offset future rental income, not offset against salary or wages. Tax rules are political and change with elections, so any plan should account for the possibility of future change.
Loan Structure Options
A well-structured investment loan uses the right combination of facilities. Here are the main building blocks.
Fixed Rate: Certainty and Cost Control
Locks in a rate for a set term, typically one to five years. Provides certainty on repayments and is generally the cheapest option for the chosen term. Most investors fix the bulk of their borrowing, splitting across different terms so portions roll off at different times.
Floating Rate: Maximum Flexibility
The rate moves with the market. More expensive than fixed in most environments, but allows unlimited extra repayments and full flexibility to restructure at any time without break fees.
Interest Only: Cash Flow Optimisation
You pay only the interest for a set period, subject to lender approval. This maximises cash flow in the early years of ownership and can be useful when negative gearing. The trade-off: you are not reducing the loan balance, so you carry more risk if property values fall.
Revolving Credit: Offset Interest Daily
Works like a large overdraft secured against your property. Rent payments flow in and immediately reduce the balance, and therefore the interest charged, while the remaining lending sits on cheaper fixed terms. A small revolving credit facility alongside a larger fixed loan is a common and effective structure for rental properties.
Offset: Reduce Interest Without Repaying
An offset account links a savings or transaction account to your mortgage. The bank calculates interest on the net balance, reducing your effective interest cost. Not all lenders offer this, and not all offset products work the same way. A broker can identify whether an offset arrangement makes sense for your situation.
